| Alpha Corp Development Private Limited | ||||||
| Ratings downgraded to 'CRISIL BB+ / Stable / CRISIL A4+ ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL has downgraded its ratings on the bank facilities and non-convertible debentures (NCDs) of Alpha Corp Development Private Limited (Alpha; a part of the Alpha group) to ‘CRISIL BB+/Stable/CRISIL A4+’ from ‘CRISIL BBB-/Stable/CRISIL A3’.
The rating action reflects the weaker operational performance amidst the Covid-19 induced disruption. Sales and collections for the first half of fiscal 2021, were down by 18% and 60%, respectively, over the corresponding period of the previous fiscal. No fresh launches in the preceding 12 months also affected the sales and collection trend. To offset this trend, the company has signed contracts with various developers to sell development rights, proceeds from which are expected to come over fiscals 2022 and 2023 which will partly provide respite to its cash flows.
Consquently, liquidity will remain tight with relatively large principal repayments in fiscals 2022 and 2023. Alpha has prepaid all its principal obligations till April 2021, which will offer some cushion. For part of its term loan repayment due in fiscal 2022, Alpha has applied for extension in repayment schedule on account of shift in scheduled commercial operations date (SCOD) of one of its projects under the Reserve Bank of India’s (RBI) guidelines issued in June 2019. The proposal is being evaluated by the lender and if approved, will further ease pressure on liquidity. CRISIL will continue to monitor the developments on the formal sanctioning of the extension by lenders.
The ratings continue to reflect the Alpha group’s moderate financial risk profile, and the extensive experience of the management in the real estate sector. These strengths are partially offset by the slowdown in sales and subdued collections, and cyclicality inherent in the Indian real estate industry. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of Alpha and all its subsidiaries and associate entities, collectively referred to herein as the Alpha group. NCDs of Rs 46 crore have been treated as neither debt nor equity as no material outflow is expected towards servicing these NCDs that carry a coupon of 0.001%. Moreover, Alpha is in discussion with lender to shift these NCDs from its books.
Please refer to Annexure - Details of consolidation, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: * Moderate financial risk profile Financial risk profile is marked by a moderate gearing of 1.09 times as of March 31, 2020. Having prepaid debt worth nearly Rs 27 crore, there is no principal amount due until April 2021. The group may continue to prepay its existing debt as per the escrow account mechanism, where 50% of cash flow from some projects are deposited directly with the bank and used to prepay debt. The NCDs are expected to move out of the books with no significant impact on cash flow.
Alpha has moderate financial flexibility with land bank, book value of which is over Rs 130 crore and unencumbered cash and bank balance of around Rs 29 crore as on September 30, 2020.
*Extensive experience of the management Alpha is currently owned and managed by Mr Ashish Sarin, who has over two decades experience in the commercial and residential real estate segments. His longstanding presence and the group’s proven track record of operations have helped Alpha establish its brand across northern India. The group has a reputation for timely execution and delivery of projects across 7 million square feet (sq ft) in the region, and has ongoing and planned projects with a combined area of around 9 million sq ft. Monetisation of land parcels in a timely manner has also supported cash flows.
Weakness: *Slowdown in sales with subdued collections The subdued demand scenario has led to a slowdown in sales of ongoing real estate projects. The group was able to sell only 1.3 lakh sq ft of area in the first half of fiscal 2021, vis-à-vis 1.6 lakh square feet of area in first half of fiscal 2020, that too primarily in low-valued plots. Pace of collections was also slower compared to the previous year. Saleability and collections may be impacted further, due to delay in launch of projects in Gurugram and other plotted development projects. Sales and collections may pick-up after the launch of these projects, and hence, remain a key rating monitorable.
*Exposure to inherent risks and cyclicality in the real estate industry Cyclicality in the domestic real estate sector leads to fluctuations in cash inflow because of volatility in realisations and saleability. Cash outflow, relating to project cost and debt repayment, on the other hand, is relatively fixed. This could lead to substantial mismatches in cash flow. Weak demand and the bearish consumer sentiment have constrained the residential segment over the past few years, and given rise to refinancing needs. The segment is further plagued by presence of various regional players, high transaction cost and opaque transactions. Events such as demonetisation, implementation of the Real Estate Regulatory Authority Act (RERA), the NBFC crisis and the Covid-19 pandemic have adversely hit demand, also reflected in drop in saleability. |
Liquidity: Stretched The company has tied up receivables from sold inventory of Rs 61 crore, which can fund the ongoing projects’ construction cost of Rs 44 crore. It also has committed receivables from the sale of developmental rights which are expected over the medium term. Alpha has also prepaid its principal due till April 2021, however cash accruals may tightly match the large debt repayments in fiscal 2022 and 2023. The company has applied for extension in repayment schedule for one of its term loans on account of shift in scheduled commercial operations date (SCOD) under RBI’s circular issued in June 2019 and the proposal is being evaluated. Liquidity is aided by unencumbered cash and equivalents of around Rs 29 crore as on September 30, 2020, and land bank book valued at over Rs 130 crore. The company had availed for a moratorium on its bank loans between March and August 2020, but has not availed any restructuring under the RBI guidelines on 'Resolution framework for Covid-19-related stress’ issued on August 6, 2020. |
Outlook Stable CRISIL Ratings believes the Alpha group will continue to benefit from its healthy track record in the real estate industry and an experienced management team. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Group Incorporated as Alpha Buildtech Pvt Ltd in 2003, the company was renamed as Alpha G: Corp Development Pvt Ltd in fiscal 2006. In fiscal 2016, Blackstone Fund acquired a majority stake in the company and it got its present name. The company was subsequently demerged with the Blackstone group, and the malls at Amritsar and Ahmedabad were turned into separate 100% owned entities under Blackstone. The entire control of Alpha now lies with Mr Ashish Sarin, who has over two decades of experience in the real estate sector.
The Alpha group has developed over 7 million sq ft of real estate projects in the retail, commercial, and residential segments, and has ongoing and planned projects with a combined area of around 9 million sq ft. |
Key Financial Indicators (Consolidated)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Not yet placed |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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